TALF: Term Asset-Backed Securities Loan Facility
From Wikipedia, the free encyclopedia
Jump to: navigation, search
The Term Asset-Backed Securities Loan Facility (TALF) is the name of a program created by the US Federal Reserve (the Fed), announced on November 25, 2008[1]. The facility will support the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans.
The Fed explained the reasoning behind the TALF as follows:
New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.
[edit] TALF administrative structure
To manage the TALF loans, FRBNY will create a special-purpose vehicle (SPV). The SPV will buy the assets securing TALF loans.[2] The U.S. Treasury Department--under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008--will provide $20 billion of credit protection to the FRBNY in connection with the TALF, by buying debt in the SPV [2].
[edit] Eligible collateral
Eligible collateral will include U.S. dollar-denominated cash ABS that have a long-term credit rating in the highest investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a long-term credit rating of below the highest investment-grade rating category from a major NRSRO. Synthetic ABS do not qualify as eligible collateral. [3]
[edit] Term
The facility will cease making new loans on December 31, 2009, unless the Board agrees to extend the facility.[3]
[edit] References
1. ^ "Press Release" Board of Governors of the Federal Reserve System
2. ^ a b "TARP goes TALF as FRBNY lends against AAA ABS". Time. November 25, 2008. curiouscapitalist.blogs.time.com. Retrieved on 23 December 2008.
3. ^ a b "Term Asset-Backed Securities Loan Facility (TALF) Terms and Conditions". federalreserve.gov. Retrieved on 23 December 2008.
[edit] See also
* H.R. 1424
* Liquidity crisis of September 2008 |
